MTIC (Missing Trader Intra Community) fraud

The most common form of VAT fraud is Missing Trader Intra-Community (MTIC) fraud. The basic MTIC fraud model involves organised, sophisticated activities that seek to exploit differences in how VAT is treated in different EU Member States. The criminals create a structure of linked companies and individuals across these states in order to abuse both national and international trading and revenue-accounting procedures.

This crime takes advantage of legislation that allows trading across Member State borders to be VAT free: VAT is applied only to sales within a Member State at the applicable domestic rate. This enables traders to import goods without accounting right away for the VAT. Any VAT charged on sales should be declared and paid to the Member State’s revenue authority. In simple MTIC cases, fraudsters sell the goods, charge the VAT to buyers without remitting the value to the tax authorities.

More complex cases of VAT fraud are typically known as carousel frauds. As part of these fraud schemes, goods are imported and sold through a series of companies before being exported again. The first company in the domestic chain charges VAT to a customer, but does not pay this to the government, becoming what is known as a "missing trader". The exporters of these goods claim and receive the reimbursement of VAT payments that never occurred.

Links between participants are disguised to make early detection more difficult. The initial entities responsible for the tax damage, the missing traders, may operate for only a few months before disappearing.

Changes in commodity prices have an impact on the profitability of MTIC fraud schemes involving specific commodities or services. This is particularly true for fraud schemes involving the energy sector and related commodities, which are subject to frequent price fluctuations.

Expanding activities

Traditional MTIC fraud schemes involve goods such as precious metals, mobile phones or high-value portable electronic items. The more damaging organised crime groups have mutated their activities into intangible markets, such as the environmental and energy sectors.

The activity is not a victimless, "white-collar" crime that affects only governments, however. By depriving EU Member States of tax revenue, the criminals are effectively robbing EU citizens of the means for governments to fund the provision of infrastructure such as schools and hospitals as well as vital public services. Fraudsters often use their profits to fund other forms of criminality, such as cigarette smuggling or drug trafficking.